Part 1

First, the administration is considering purchasing a gymnasium adjacent to your school. The gymnasium is for sale for $8 million and initial costing analysis has revealed that to get the gymnasium up and operational would require another $2 million. The average operating cost for gymnasium would be $500,000 per year. The gymnasium is estimated to bring in $1 million (per year) for the next 10 years. The gymnasium will need a major renovation after ten years and the residual value at that time will be $9 million, considering the increase in real value of property in the area over recent history.

Part 2

Second, you are considering refurbishing the lighting system in your administration building. After initial investigation, the school procurement office has narrowed down the options to two: Option 1 is an Ergolight system that costs $500,000 to purchase and install. Option 2 is a conventional system that costs $100,000 to purchase and install. Both Systems are expected to last for twenty years. The energy and maintenance costs for Option 1 are $20,000 and $2,000, respectively. The energy and maintenance costs for Option 2 are $50,000 and $10,000.

Assignment

Applying cost/benefit analysis and lifecycle costing methods to the appropriate situations using the attached worksheets, calculate each scenario according to CBA and LCC principles. Be sure to enter outflows as negative numbers and inflows as positive numbers into the orange cells.